For the first time in 17 years, the US government sector has come to an impasse over the discord between the Democrats and the Republicans on the health-care law, dubbed as the Obamacare. The huge costs involved in the health-care program which is aimed at to provide health insurance coverage to millions of uninsured Americans has led to this political gridlock. President Barack Obama commented, “Shutdown will have a very real economic impact on real people”. Nearly 800,000 federal workers faced furloughs. Many government offices got closed completely or partially. The mortgage market has not also remained unscathed. A protracted shutdown may play spoilsport to the housing market recovery too. Here we concentrate on the probable effects of this federal shutdown to the mortgage market only -
1. Prolonged shutdown may lower mortgage rates
This year, mortgage rates have moved both ways. It touched historic lows; it also moved up to 2-year highs. Anyways, the direction in the mortgage rate replicates the overall economic situation in the country. With a prolonged shutdown, it is likely that the economy will slow down. In a sluggish economy, the banks and the mortgage lenders will try to lower down the mortgage rates so as to increase their business.
2. Mortgage firms may not get IRS documents
One of the government departments which has faced shutdown is the Internal Revenue Service (IRS). Nearly 90,000 employees of the IRS have faced temporary layoffs. October 15 is the extended date for filing tax-returns. This work is likely to be hit due to close down. With complete cessation of work at the IRS department, mortgage firms are not able to verify the tax documents of the borrowers. This is delaying the mortgage approval process. If this standstill is extended, this is likely to have deep impact on the mortgage market. This close down has also hampered the process of verification of the social security number.
3. FHA loans to be badly hit
Federal Housing Administration (FHA) is a federal organization which insures the loans offered by the private lenders. FHA offers protection to the lenders against the defaulting borrowers. Reduction in the staff in the FHA department is likely to delay the closing or processing of the loans insured by the FHA. In case of a FHA-insured loan, a FHA case number is required before the home appraisal. Now, with shutdown in the FHA department, this number can't be obtained. According to the sources of the US Department of Housing and Urban Development, if this shutdown continues, this will have very serious negative impact on the FHA loan market.
4. Housing market recovery to hit
The housing market recovery is likely to be negatively impacted by the federal shutdown. If the shutdown continues, it will delay the mortgage process and will led to a decline in home purchases. This will in turn hurt the housing market recovery.
History says that in the past, the country had witnessed government shutdown several times and in many cases the country had come out even stronger. Last the the country witnessed government shutdown in 1995-96 and it lasted for 21 days. This time also, it is hoped that a consensus will be reached and the impasse will not last for long and of course the usual alacrity in the mortgage market will reappear.